The purpose, users, and uses of accounting.




  1. Context and purpose of accounting 

  1. What is accounting? 

  • Accounting is defined as the process of recording a company’s financial transactions. It requires the accountant to summarize, analyze, and report these transactions to oversight organizations, regulators, and tax collection entities. (Fernando, 2023) 

  • There are three basic activities in accounting, including:

                1. Identification activities: the activity of detecting numerous transactions that occur within the organization Therefore, the company will receive data thoroughly. (www.soltius.co.id, n.d.).

                2. Activity login: The company will record, classify, and summarize these transactions in the form of financial statements. (www.soltius.co.id, n.d.).

                3. Communication activities: The outcome of the statements should be sent to individuals who require communication financial reports, both internal and external of the company. (www.soltius.co.id, n.d.).

  1. Accounting links decision-makers with economic activities. 

       

(devant007, 2011)

2. The users of accounting 

  1. Users of accounting

  • Internal users: They are the people involved in the day-to-day operations of the business and in long-term strategic planning.  (courses.lumenlearning.com, n.d.)

 (Pulkit Bordia, 2013)

  • Managers: These people have responsibilities for making judgments and decisions within a business to employ the resources of the business efficiently so that they can meet the objectives of the business. (Weetman, 2013)

  • Owners: In the case where owners are the same as managers, such as “sole traders”, or a “partnership”, they have no problem in gaining access to accounting information and these data will be selected to their own needs. (Weetman, 2013)

  • Employees: They are interested in information about the stability and profitability of their employers. Moreover, employees' needs for data are also the ability to provide remuneration, retirement benefits, and employment opportunities. (Weetman, 2013)

  • External: External users are people who are interested in an organization's account information but are not involved in the administrative process. (www.iedunote.com, 2023)

(Pulkit Bordia, 2013)

  • Lenders: They are the people who provide finance on a longer-term basis. Since they are particularly concerned with the risk of default and its consequences, loan creditors will wish to assess the economic stability and vulnerability. (Weetman, 2013)

  • Suppliers and other trade creditors: Suppliers of goods and services are interested in information that enables them to decide whether to sell to the entity and to determine whether the amounts owing to them will be paid when due. The IASB mentions “other creditors” as users of financial statements. (Weetman, 2013)

  • Customers: Customers need information concerning the current and the future supply of goods and services offered, price and other product details, and sales conditions. Therefore, the financial statement provides useful confirmation of the reliability of the enterprise itself as a continuing source of supply, especially when the customer is making payments in advance.  (Weetman, 2013)

3. What is the purpose of accounting?

  • Accounting is referred to as "the business language.” It is a means of transmitting financial information to various users for them to make decisions.  (FreshBooks, 2020)

  • Accounting's primary scope is: 

                                                                                                                         
(Pinterest, n.d.)

  • Recording transactions: Its primary function is to keep a systematic, accurate, and full record of all financial activities in an organization. These records serve as the foundation of the accounting system. When necessary, business owners should be able to recover and evaluate transactions. (FreshBooks, 2020)

  • Budgeting and planning: Budgeting and planning allow firms to anticipate their needs and resources, allowing them to prepare ahead. This facilitates the synchronization of various organizational parts. (FreshBooks, 2020)

  • Decision-making: Accounting helps owners set rules to improve the efficiency of corporate processes and assists in a variety of decision-making processes. (FreshBooks, 2020)

  • Business performance: The performance of a company can be ascertained by its owners. (FreshBooks, 2020)

  • Financial position: The financial statements produced at the end of the accounting cycle show a company's financial situation. It displays the amount of capital spent, the amount of funds used by the business, the profit and loss, and the number of assets and liabilities of the company. (FreshBooks, 2020)

  • Liquidity: Accounting aids in establishing a company's liquidity, which refers to the cash and other liquid resources available to pay off financial obligations. (FreshBooks, 2020)

  • Financing: Accounting assists business owners in the preparation of historical financial records as well as financial projections that can be utilized when applying for a loan or getting investment for the company. (FreshBooks, 2020)

  • Control: Accounting assists in avoiding losses caused by theft, fraud, errors, damage, obsolescence, and mismanagement by implementing various checks throughout the firm. Internal controls protect the company's assets and help to avoid long-term losses. (FreshBooks, 2020)

  • Legal requirements: Businesses are required by law to keep an accurate financial record of their transactions and to share these reports with shareholders, tax authorities, and regulators. The financial statements and information are also necessary for indirect and direct tax filing purposes. (FreshBooks, 2020)

4. Conclusion 

       - Accounting is a massive field that includes numerous job opportunities. The best part about this is that the demand for qualified accountants will continue to increase in the coming years. So let’s go numb together and learn the basic theories about accounting. Again, hopefully, it helps. Until then, goodbye!

Reference:

  • Fernando,(2023). Accounting. [online] Investopedia. Available at: https://www.investopedia.com/terms/a/accounting.aswww.soltius.co.id.Functions, Objectives, Activities, and Types of Accounting. [online] Available at: https://www.soltius.co.id/blog/functions-objectives-activities-and-types-of-accounting
  • devant007 (2011). Accounting Information- A = to End. [online] hotelsheaven. Available at: https://hotelsheaven.wordpress.com/2011/10/19/accounting-information-a-to-end/ [Accessed 4 Nov. 2023]
  • ‌Pulkit Bordia (2013). Users of accounting information. [online] Available at: https://www.slideshare.net/Pulkitbordia/users-of-accounting-information-28518042.
  • ‌www.iedunote.com. (2023). Users of Accounting Information [Internal & External Users]. [online] Available at: https://www.iedunote.com/users-of-accounting-information#external-users-of-accounting-information.
  • Weetman, P., 2019. Financial and management accounting. Pearson UK, Principles of Accounting I, L.L. (no date) Financial accounting, Users of Accounting Information, Financial
  • FreshBooks (2020). Why Is Accounting Important for Small Businesses? [online] FreshBooks. Available at: https://www.freshbooks.com/hub/accounting/why-is-accounting-important.
  • ‌Pinterest.(n.d.).Purpose of #accounting. [online] Available at: https://pin.it/4nMp9yv [Accessed 5 Nov. 2023].‌


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